6 Reasons Why ELSS Is Better Than Other Tax-Savings Instruments

In case of financial matters like investments and savings, an individual’s inclination is usually towards investments catering his tax-saving needs. While there are various tax savings instruments available in the market today, equity-linked savings schemes (ELSS) have emerged to be the current flavour of the season with thousands of investors flocking for a share of this wonderful product.

So, what makes this investment option the favoured choice? Given below are five reasons that state, why investment done in ELSS is better than other tax-savings instruments:

ELSS Funds Offers Tax Benefits

ELSS funds qualify you for tax exemptions, where your investments of up to Rs 150,000 can be claimed as a tax deduction in a financial year under section 80C of the IT Act. Additionally, capital gains earned through these funds are tax-free, i.e. there is no tax imposed on the earnings accrued through ELSS investments or the maturity amount.

Offers a Shorter Lock-in Period

Another popular feature is- ELSS have the shortest lock-in period, as compared to other Section 80C products. For example, National Savings Certificate (NSC), Bank Fixed Deposit (FD), and Unit Linked Insurance Plan (ULIP) come with a lock-in of 5 years, whereas Public Provident Fund (PPF) has a lock-in of 15 years.

But ELSS funds have a comparatively shorter lock-in period of minimum 3 years. This feature offers you access to funds faster than any other tax-saving instruments. Thus, it benefits you to re-invest the capital either in the same or different scheme, making it a long-term investment option.

Provides High Return on Investment (ROI)

Since ELSS funds invest in equities, the average returns they offer are higher than other instruments, meaning they provide excellent capital appreciation. Thus, not only do you save tax, but also make a bigger profit. While PPF and fixed deposits offer returns in the range of around 6 to 8 percent, ELSS funds have generated returns of around 12 percent or higher historically.

However, in order to derive maximum benefits, it is recommended that you make investments over the long term.

Protects from Inflation

While fixed deposits and bonds, might offer returns that are in line with the pace of inflation, in reality, the actual returns are quite low. However, ELSS funds help earn returns that can beat inflation. Furthermore, returns from ELSS funds are tax-free, hence, they provide higher gains compared to other investment vehicles, which are in line with the increase in inflation.

Teaches Financial Discipline Through SIP

ELSS funds provide you with the SIP facility, wherein, you get the chance to invest in small amounts and at regular intervals. This facility helps you to maintain financial discipline and does not pinch your pocket. Thus, it reduces the strain of having to invest a lump sum amount at a time. Also, the good news is that you can make investments with the amount as small as Rs 500.

ELSS Funds are Affected Minimally by Market Volatility

Traditionally, ELSS mutual funds have found to be less volatile as compared to other equity instruments. Therefore, if you want an investment vehicle that can protect against the volatility of traditional market investments, choose the best ELSS funds to invest in 2018.

Conclusion:

It is true that ELSS funds come with a bunch of positive features. That doesn’t mean you invest in them blindly. Find the best ELSS funds to invest in 2018 and take a plunge considering your risk profile, investment objective and horizon.

If you are ready to hold on to your investments for more than five years and take a bit of risk, you can consider investing in ELSS funds. But don’t just look at ELSS from the tax-saving perspective, make it a part of your overall financial plan.